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APPENDIX 2.2
Enter
Source
document
(e.g., sales
invoice)
Trace
Special
journal
(e.g., sales)
Post
Prepare
General
ledger
Trial
balances
Trace
Balance sheet
Reconcile
Income
statement
Trace
Trace
Post
Statement
of cash flow
Subsidiary
ledger
(e.g., accounts
receivable)
Processing path
Audit trail
FIGURE A2.1-2 Flows from transaction processing steps and traces along the audit trail.
balance is to ascertain that the total of all debit account
balances is equal to the total of all credit account balances. Normally, three end-of-period trial balances are
needed:
1. A preadjusting trial balance, which is prepared after all the entries of an accounting period have
been posted.
2. An adjusted trial balance, which is prepared after
adjustments have been recorded and posted to
the general ledger accounts. These adjustments,
called adjusting entries, are journal entries made
to recognize accruals, deferrals, and errors in previously posted transactions.
3. A postclosing trial balance, which is prepared after the accounts are readied for the next accounting period. The closing process consists of
entering and posting closing entries, which has
the effect of closing the temporary accounts (i.e.,
the revenue and expense accounts).
Prepare Financial Statements and Other Accounting
Reports The final step in the financial accounting cycle
is to produce the outputs needed by the wide array of internal and external users. The most familiar outputs are
the financial statements: balance sheet, income statement, and statement of cash flows. Other outputs based
on transaction data include monthly statements for customers and quarterly payroll statements concerning employees’ earnings.
Outputs for the benefit of the firm’s managers are
generated in cooperation with the managerial accounting cycle, which may be viewed as a separate sequence
related to the activity of information processing, or as a
cycle that overlaps with the financial accounting cycle.
Chief among these outputs are financial statements in
more detail than those provided to external parties.
Also, managers may desire breakdowns of revenues by
various segments such as product lines, markets, and
geographical areas. They may need performance reports
concerning the results achieved by the various responsibility centers throughout the organization.
APPENDIX 2.2
DOCUMENT FLOWCHART FOR A MANUAL PROCEDURE
Nature
A document flowchart shows the detailed path of hardcopy input and output documents through organizational units, from origination to disposition. It is
employed primarily during systems analysis and early
design to portray manual procedures. Accountants can
use document flowcharts to pinpoint weaknesses in internal controls and paper flows as the documents move
through business processes. In this section, we illustrate
the preparation of a document flowchart which blends
the features of a system flowchart with those of a
process flowchart. This blended flowchart can be called
a document system flowchart.
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APPENDIX 2.2
Terminal point
of procedure
Processing
operation
performed manually
Document
or report
Symbols
Only certain symbols are needed to prepare a document
system flowchart. They are the terminal, manual processing, document, annotation, on-page connector, file,
and records and master files symbols.
Example
The following narrative describes the purchasing procedure for the Easybuy Company: A clerk in the accounting department periodically reviews the inventory
records in order to determine which items need reordering. When she notes that the quantity on hand for
a particular item has fallen below a preestablished reorder point, she prepares a prenumbered purchase requisition in two copies. The original is sent to the
purchasing department, where a buyer (1) decides on a
suitable supplier by reference to a supplier file and (2)
prepares a prenumbered purchase order in four copies.
The original copy of the purchase order is signed by the
purchasing manager and mailed to the designated supplier. The second copy is returned to the inventory clerk
in the accounting department, who pulls the matching
requisition copy from a temporary file (where it had
been filed chronologically), posts the ordered quantities to the inventory records, and files the purchase requisition and order together. The third copy is forwarded
to the receiving department, where it is filed numerically to await the receipt of the ordered goods. The
fourth copy is filed numerically, together with the original copy of the purchase requisition, in an open purchase order file. When the invoice from the supplier
arrives, this last copy is entered into the accounts
payable procedure.
Several features of the purchase procedure should
be noted. It involves manual processing of transactions, it moves among three departments, and it generates documents having several copies. In order to
plan a flowchart of this type, we begin by deciding that
three organizational units are to be involved in the
procedure. Then we section a sheet of paper (or the
computer screen, if a flowchart package is used) into
three columns, which we label “Accounting Department,” “Purchasing Department,” and “Receiving Department.”
Annotation
On-page
connector
File of
stored
documents
•
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Records in
a data file,
including
journals and
ledgers
For convenience, we subdivide our work into four key
steps or functions. Each is briefly discussed in the following numbered sections. The flowchart for each of the
four sections is shown in Figure A2.2-1.
1. Preparation of the purchase requisition.
Note that a flow line connects an accounting record
symbol, labeled “Inventory records,” to the manual processing symbol. This connection from the inventory
records to the manual processing symbol denotes that
inventory data are used during the preparation of the
purchase requisition. A flow line from the manual processing symbol to the document symbol indicates that a
purchase requisition, in two copies, is an output from the
processing step. (Note that when multiple copies of a
form are prepared, they are numbered and shown in an
offset manner.)
The final function of this flowchart segment is to
show the disposition of the two copies of the purchase
requisition. A flow line pointing to the right directs
copy 1 to the purchasing department, whereas a downward flow line indicates that copy 2 is filed in a folder.
The letter C in the file symbol means that copy 2 is
arranged chronologically (by date) within the file. (Note
that it is not necessary to show a processing symbol
that specifies a filing action between the document and
the file.)
2. Preparation of a purchase order.
Two flow lines lead to the processing symbol, one
from the first copy of the purchase requisition and
the other from the supplier file. Based on data from
these two sources, a buyer in the purchasing department prepares a purchase order in four copies. Another “output” flowing from the processing symbol is
copy 1 of the purchase requisition. Since it entered the
processing symbol, as noted by the flow line from the
accounting department, it must also leave the processing symbol. As the segment shows, it is then deposited in the open purchase order file. (An important
rule of document flowcharting is to show the final disposition of every copy.)
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Accounting department
1
Initiate
purchase
Reorder as
needed when
quantity on hand
reaches reorder
point
Review
records and prepare
purchase req.
when needed
1
Purchase
requisition
Hold until
purchase order
is
received
Inventory
records
To purchasing
department
2
Purch.
req.
C
Purchasing department
2
Supplier
file
A
Prepare purchase
order and
obtain
approval
From accounting
department
1
Purchase order 2
(P.O.)Financial 3 4
statements
To receiving
department
1
Purchase
requisition
1
Open p.o.
To supplier
N
To accounts
payable
FIGURE A2.2-1 Flowcharts for each of the four sections.
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Accounting department
3
From file
Match
documents;
post order to
records
Inventory
records
1
From purchasing
department
2
Purchase
requisition
2
Purchase order
Pur.
req.
N
Receiving department
4
From purchasing
department
File until arrival
of ordered goods
Pur. order
file
N
3
Purchase
order
To receiving
procedure
FIGURE A2.2-1 (Continued)
The remainder of this flowchart segment depicts the
disposition of the four purchase order copies. An alternative way to show the disposition of copy 1 would be to add
a column on the flowchart labeled “Supplier” and show
the flow of copy 1 to that column. (However, a column is
necessary only if processing steps are to be shown within
the column.) Copy 2 terminates with an on-page connector labeled “1.” The receiving department will continue the
disposition of copy 2. Copy 4 is filed together with copy 1
of the purchase requisition. The terminal symbol below
the file indicates that the filed copies will be used in the
accounts payable procedure. (Note that a column has not
been allotted on this flowchart for the accounts payable
department, since the department is not involved in the
processing being portrayed.)
One additional flowcharting convention is illustrated
in this segment. When flow lines cross, a “jumper” ( )
denotes the crossover.
3. Updating of the inventory records.
Two inputs, copy 2 of the purchase requisition and copy
2 of the purchase order, enter into the processing. The
former is pulled from the file folder, while the latter arrives from the purchasing department. (Note that the
on-page connector in effect links to the on-page connector shown in the previous segment.)
As the last step in this segment, the two documents
leave the processing symbol and flow into a file. Note
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APPENDIX 2.2
Accounting department
Purchasing department
Receiving department
Initiate
purchase
Reorder as
needed when
quantity on hand
reaches reorder
point
Review inventory
records and prepare
purchase requisition
when needed
1
Purchase
requisition
Hold until
purchase
order is
received
Inventory
records
Supplier
file
A
File until
arrival of
ordered
goods
Inventory
records
Prepare purchase
order and
obtain
approval
2
Pur. ord.
file
N
1
2
Purchase
3
Financial
order
4
statements
Pur. req.
file
C
3
Purchase
order
1
Match documents;
post order to
inventory records
and file
1
1
Purchase
requisition
To receiving
procedure
2
Purchase
requisition
2
To supplier
Purchase order
Pur. req.
file
N
Open P.O.
file
N
To accounts
payable
FIGURE A2.2-2 A document system flowchart of a manually performed purchases procedure.
that when two or more documents move together, a single flow line is sufficient.
4. Filing of the receiving department’s copy of the
purchase order.
In this brief segment, copy 3 of the purchase order is
placed temporarily into a file maintained in the receiving
department. On the arrival of the ordered inventory
goods, the copy is withdrawn (pulled) and entered into
the receiving procedure.
Figure A2.2-2 combines the four segments just described into a manual document system flowchart of
the purchases procedure. As we shall learn, it is possible for multicolumn document-type flowcharts to portray computer systems. However, in most situations they
are less useful than when manual systems are to be
portrayed.